Oil Supply / Demand Report

FY 2007

SUPPLY

Inventory

Global oil markets will likely remain tight in 2008 according to the Short-Term Outlook of US-Energy Information Administration (EIA) office. Meanwhile, the commercial inventories of the Organization for Economic Cooperation and Development (OECD) countries continued to fall through the end of 2007. Said inventory tightness was cited as one of the contributing factors to expectations that prices will remain high and volatile in 2008 aside from the on-going geopolitical risks and worldwide refining bottlenecks.

In the local market, the government continues to enforce the minimum inventory requirement in the downstream oil industry to ensure continuous, adequate, stable and reasonably priced petroleum products in the country.

Actual inventory as of end December 2007 recorded at 16,233 MB or 58-day supply equivalent (51 days for crude oil and products in stock and 7 days for crude in-transit to the country). This is 10.1percent lower than last year’s end-December level equivalent to 18,052 MB. Meanwhile, YTD December 2007 average inventory is reported at 63 days, 50 days in stock and 13 days in-transit.

About ninety-one percent (90.6%) of the total crude mix was sourced from the Middle East; where in 63.0% came from Saudi Arabia.

Crude oil imports from Iran, which used to be the second largest supplier of crude oil into the country, were reduced to only 2.0 percent of the total crude mix. This was because Pilipinas Shell terminated its term supply contract of Iranian Crude Oil from Iran starting January of this year for economic reasons.

Meanwhile, crude oil imports from the Far East Region such as Malaysia, Philippines and Singapore supplied 4.8, 0.3 and 0.1 percentages, respectively. On the other hand, the remaining 3,150 MB equivalent to 4.2 percent of the total crude mix was sourced from Australia (Fig. 1).

Petroleum Product Imports

Due to lower volume of crude oil imported by the local refiners in 2007, import volume of finished petroleum products rose by 11.4 percent from 41,046 MB of 2006 to 45,712 MB.

The oil majors (Petron, Caltex and Shell) accounted for 60.8 percent of the total import volume with an increase of 7.4 percent from last year’s level of 25,881 MB to 27,799 MB. Similarly, other industry players import volume which accounts for the remaining 39.2 percent went up by 18.1 percent from last year’s 15,165 MB to 17,913 MB this year.

Meanwhile, the direct importers accounted for 70.1 percent (32,050 MB) of the total product imports while the remaining 29.9 percent (13,662 MB) is attributed to the local refiners (Petron and Shell).

Total gasoline import now reached 49.2 percent of gasoline demand while diesel oil import is 40.9 percent of diesel demand. LPG import on the other hand, is now 76.4 percent of LPG demand. Total product import is now 43.6 percent of the total products demand. This is higher than 2006’s 40.7 percent due to the increased volume of finished products imported for the period.

Meanwhile, the oil majors’ import share in the total demand is now 26.5 percent while the other players’ import share is at 17.1 percent. As for the refiners, their import share in the total demand is at 13.0 percent, while 30.6 percent is attributed to direct importers.

With the government’s intensified alternative fuels program, some players have started to blend fuel bioethanol in their gasoline. A total of 19.9 MB of ethanol from Indonesia, Brazil and Thailand was imported during the period. This was intended for use in the fuel-ethanol program.

Crude Run and Refinery Production

For economic reasons, Pilipinas Shell opted to change its crude mix resulting to a decrease in the country’s maximum working crude distillation capacity of 290 MBSD to only 284 MBSD.

Meanwhile, as a consequence of the reduced crude imports during the period, volume of crude processed locally was also down to 75,078 MB from 77,160 MB of 2006, equivalent to a 2.7 percent decrease in volume. Even with the maintenance shutdown conducted by the oil refiners during the period, the country’s local refinery capacity utilization still managed to slightly grow from 72.9% of 2006 to 73.7% this year.

Local petroleum refinery production output also fell by 3.6 percent from last year’s 74,808 MB to 72,127 MB. As such, production output of all products except for avturbo/kerosene and fuel oil which grew by 1.3 and 1.2 percent, respectively decreased vis-à-vis production output of 2006 level. 2007 average refining output is at 198 MB per day.

Pilipinas Shell is now using Malampaya Gas as fuel gas for their gas turbines and furnaces (PLF, TGU, and CDU) to augment their requirements since the company’s production of fuel gas from internal production is not enough.

Diesel oil captured the biggest share in the production mix with a 36.7 percent share, followed by fuel oil with a 29.4 percent share. Next is unleaded gasoline with a 17.3 percent share, trailed by kerosene/avturbo with 10.1 percent share. LPG on the other hand, got 4.1 share of the total production mix (Fig. 2).

DEMAND

Petroleum Product Demand

The country’s total demand of petroleum products for 2007 was increased by 3.8 percent from 100,930 MB of 2006 to 104,755 MB. This translates to an average daily requirement of 287.0 MB.

Diesel oil obtained the largest share of 38.7 percent in the total sales mix, trailed by unleaded gasoline, fuel oil and LPG at 22.2, 17.5 and 11.1 percentages, respectively (Fig. 3).

Meanwhile, with the effectivity of the Bio-fuels Act of 2006, otherwise known as R.A. 9367, starting May 6, 2007, automotive diesel sold in the market is now required to be blended with 1% Coco Methyl Esther (CME) and will increase to two percent within two years. It is expected to result to a reduction in demand for imported diesel in the near future.

With regard to gasoline, some oil companies, on a voluntary basis, started introducing E10 (ten percent bio-ethanol blend to gasoline). It was about one percent of the total gasoline consumption equivalent to 223 MB.

Meanwhile, sale of LPG for automotive use is already 719 MB or 6.2 percent of total LPG sales for 2007.

Petroleum Product Exports

Total petroleum products exported for the period only grew by 0.9 percent from 18,503 MB of 2006 to 18,673 MB. The shutdown of Petron’s Gas Oil Hydro Treater (GOHT) contributed to the weak performance of the country’s oil export in 2007 despite the increased in volume of fuel oil and condensate exports.

On a per product basis, total export mix comprised of fuel oil (52.2 percent), condensate (31.0 percent), diesel oil (2.8 percent) and avturbo (1.5 percent). Other products such as naphtha, reformate and mixed xylene made-up the remaining 12.4 percent of the total export mix.

The oil majors accounted for 68.8 percent of the total exports, while the condensate export of Shell Philippines Exploration B. V. (SPEX) accounted for the remaining 31.2 percent.

MARKET SHARE

Total Petroleum Products

More than eighty-four percent (84.2%) of the total market is credited to the combined sales of Petron Corporation, Chevron Phils., and Pilipinas Shell. The other industry players which include PTTPC, Total Phils., Oilink, Seaoil Corp., TWA/Filpride, Liquigaz, Petronas, Prycegas, Trisolid, Andan, Mawab and Jetti as well as the end users who directly imported part of their requirements got the remaining 15.8 percent of the market (Fig. 3).

Meanwhile, the local refiners (Petron Corp. and Pilipinas Shell) captured 69.8 percent of the total market demand, while 30.2 percent is credited to direct importers/distributors.

LPG

In the LPG industry, Petron Corp., Chevron Phils. and Pilipinas Shell’s market shares totaled 60.8 percent while the other players obtained 39.2 percent. Liquigaz still got the biggest market share among the other players with a 23.7 percent share. Next is Total Phils. with a share of 7.5 percent (Fig. 4).

However, total LPG market share of the other players is down to 39.2 percent from 2006’s 40.7 percent as a result of Nation Gas Corporation’s (an LPG player) temporary stoppage of operation since last quarter of 2006 (Fig. 4).

Meanwhile, Chevron Philippines divested their LPG retail business to Petron Corporation on May 7, 2007 while their commercial/industrial LPG business went to Liquigaz Phils. on June 16, 2007.

The divestment to Petron covers 100% of the Caltex LPG dealers and branded refillers while the commercial bulk and company-served 50-kg commercial businesses, as well as company-owned filling plants were divested to Liquigaz.

OIL IMPORT BILL

Expectations that tight market conditions will persist into 2008 are keeping oil prices high despite OPEC’s decision to hold production quotas steady. Even with downward revisions to projected consumption growth in 2008, the oil balance outlook remains characterized by rising consumption, modest growth in non-OPEC supply, fairly low surplus capacity, and continuing risks of supply disruptions in a number of major producing nations as cited by the US-IEA.

In the local market, FY 2007 total oil import bill amounting to $8.8 billion rose by 10.9 percent compared with FY 2006 level of $7.9 billion.

Import cost of crude oil amounted to $5.4 billion at an average CIF cost of $72.408/bbl, up by 6.0 percent from the 2006 level of $5.1 billion at an average CIF cost of $64.924/bbl due to higher acquisition cost of crudes.

Meanwhile, full year 2007 total product import cost increased by 19.6 percent to $3.5 billion at an average CIF cost of $78.034/bbl vis-à-vis 2006’s $2.9 billion at an average CIF cost of $70.553/bbl.

Total oil import cost is made up of 60.9 percent crude oil and 39.1 percent finished products.

Petroleum export earnings on the other hand, grew by 14.3% to $1.3 billion from last year’s $1.1 billion.

Overall, the country’s net oil import bill amounting to $7.5 billion was up by 10.4 percent from last year’s $6.8 billion.